Premier Kathy Dunderdale is warning about the serious fiscal realities that come with lower-than-forecast oil prices — and a possible billion-dollar deficit next year.

Dunderdale said the price of oil doesn’t keep her up at night, but she’s definitely taking the situation seriously.

Ministers have been ordered to rein in all discretionary spending, delay projects where possible and leave positions vacant for a few months to save cash.

“We’re going to try to find efficiencies wherever we can. I’m not so worried about this year. I’m more worried about next year because if oil stays where it is, our deficit could be around $1 billion next year if we maintain everything the way that it is,” Dunderdale said. “That’s a reality check for everybody in the province.”

When the provincial government introduced this year’s budget in April, it was forecasting oil would average out at $124 per barrel. It has consistently been much lower.

On Monday, Brent crude was trading around $105 per barrel.

As it stands, the government is already forecasting a deficit of at least $250 million.

Dunderdale said the rough calculation is that for every dollar below their forecast, the province will be off its overall budget revenue projections by $20 million.

“If everything stays where it is now, our deficit could be up around $600 or $700 million,” Dunderdale said.

She said the volatile oil situation just serves to endorse her government’s press to develop other energy assets — especially the Muskrat Falls hydroelectric project in Labrador.

“We have to get our energy out of this province one way or another, because our future depends on it,” she said.

“You won’t feel the effect of it so much today, but in 2035 and onward if we have not found a way out of this place by that time it’s not going to be a pretty picture.”

The comments on energy came during a news conference with Dunderdale just before she leaves for the Council of the Federation meeting of Canada’s premiers in Halifax later this week.

Dunderdale used the opportunity to take a few shots at Prime Minister Stephen Harper for a perceived lack of leadership on health care, energy and other issues.

“Yes, absolutely premiers need to be involved and need to be stepping up, but we need to do that in concert with the federal government,” Dunderdale said.

“We haven’t seen a first ministers’ meeting in this country in a very long time, and we believe it’s time, perhaps, to start those again.”

She said her top priorities for the meeting will be energy and health-care issues, and on both of those files, a national strategy championed by the federal government would go a long way.

On health care, for example, she said she’s worried about a change to per capita funding from Ottawa.

“First of all, we think the federal government should be leading the development of a health-care strategy in the country, but given their absence, we’ve stepped into that void because it’s so important to Canadians,” Dunderdale said.

“The formula up to this date has been based on the principle that all Canadians, regardless of where you live, deserve a baseline quality of health care.”

Under a per capita formula, she said, smaller provinces in Atlantic Canada, especially, are liable to lose out.

The criticism of Harper may be the start of a significant change for the provincial government.

Dunderdale has conspicuously worked to foster better relationship with Harper than her predecessor, Danny Williams, who routinely picked sensational fights with the prime minister.

However, in more than a year since Dunderdale endorsed Harper in the 2011 federal election, she’s been steadily criticized for it, and held responsible for a litany of perceived slights from Ottawa.

In May, Dunderdale formally requested a meeting with Harper to deal with a spate of issues.

Recent comments

Ms. Dunderdale, are you the type of leader whereby the people advising you will tell you only what they think you want to hear? If not then they should have advised you to base your budget on oil price projections which range from a conservative estimate and then from the lower end of that scale. Then you will meet your budget and any increase in the price of oil above that projection will be gravy. This is really the responsible way of handling the peoples money. Why are you not being responsible? We expect better.

Oil price is a two edged sword. High prices is good for royality income and no deficit budgets, but low prices goes against the economics of Muskrat falls, which aims to replace the expensive oil being used there. Even the consultant Manitoba Hydro pointed out the attractiveness of Muskrat diminishes with lower oil prices. But our premier seems to think this is a positive for Muskrat Falls.Where's her logic? Surely the risk is greater with lower oil prices. One could argue strickly on the environmnet and CO2 emmisions would be better with MF, but not on financial risk and comparative cost of energy. Could the premier please explain her reasoning. Maybe she's not sleeping well. It seems to me that her directive to delay projects and filling positions should be aimed specifically to Minister Kennedy and Mr Martin at Nalcor, given the turn down in oil prices may endure for a long time. At present it adds to the uncertainity of the project, and it's difficult to spin it any other way.

The ONE project that needs to be cancelled is Muskrat Falls. The logic of spending oil dollars on hydro generation that loses at least 75% on every kwh produced is deeply flawed. The people of the province need to step up and put an end to it before it's too late.

karma not only karma will come back at the ones that done this,who are they trying to insult and i am not only talking about the government they think they are fooling people,it is written in the holy bible coruption and destruction,now look who they are fooling???? i was told one time the party never stops????...is there any truths to what i was told???? the revenue we had and have and we are beening told we have a deficit try to remember your memories????

I listened to Tom Marshall this morning shifting the blame for the deficit debacle to the 'experts' they hired to forecast the price of oil. Looking at the graphs of Brent prices, the experts simply took the current price of oil for their forecast. The price had hovered around $110 for the 9 months prior to a brief spike lasting about 30 days to the $122-126 range in March. Now it is trading around $105. Remarkably these no-doubt highly paid experts predicted the future price as being the current price.
Why don't the PCs use a moving average to formulate their price prediction rather than a momentary spike price and why don't they, as their name suggests, be conservative and base their estimate, lower, say by 10%, than the moving average. This would have yielded a safer estimate of around $105 for the budget estimate.

Muskrat is a money losing giveaway. Stop the money bleed and get on with the viable options. Lower crude prices and the reality of cheap Western Canadian oil and gas delivery are going to become a reality. The NL government needs to see the writing that has been everywhere including on the walls of confederation building. We are being ABCed on every front. Its time we tried to help ourselves, use our brains and not build dedt crippling white elephants for others to enjoy the fruits of.

Premier Dunderdale waits months, so far, for a reply for a meeting with our dear leader while Toronto Mayor Rob Ford just has to ask out load and his thoughts are answered .. guess the NL tory party backing the CRAP was not all that great an idea??

Since Newfoundland and Labrador Government had record surpluses in 2008 based on Brent Crude Oil Futures at $103 per barrel, but in 2012 and 2013, we could be experiencing record deficits, perhaps now is the time for every single one of us to petition a recall against Kathy Dunderdale and Tom Marshall due to embezzlement as our funds are diverted to Muskrat Falls, gross financial mismanagement, and inconsistent budget surpluses as we should have a $2 billion surplus instead of $500 million deficit in 2012 and $1 billion deficit in 2013.
If a recall is implemented, a measure similar to USA where incompetent governors and presidents could be removed from office. One of the most famous recalls was in 2003 when California Governor, Gary Davis, was removed from office due to his leadership and financial incompetence as well as the inability to grow the state's crippled economy. Arnold Schwarzenegger was eventually elected California's Governor as a result of this recall.
Due to Dunderdale's financial and leadership incompetence similar to California's Gary Davis, maybe she should be recalled and face a leadership review, and a new provincial general election called.

As you're aware, in 2008, when Crude Oil futures were at an average price of $110 per barrel, the Newfoundland and Labrador Government had a record breaking $2 billion budget surplus.
However, four years later, our Crude Oil futures are expected to be around $103 per barrel, but instead of a similar budget surplus to 2008 levels, we are having a $500 million deficit and possibly a $1 billion deficit in 2013.
When you have a large surplus in 2008 but large deficits in 2012 and 2013 despite having similar Brent Crude Oil futures, then Newfoundlanders and Labradorians should start raising suspicions at the Kathy Dunderdale and Tom Marshall about why we are having such large deficits instead of having large surpluses.
One of these suspicious is that the Dunderdale Government is likely funneling more taxpayers money into Muskrat Falls and not even know it.
Who knows? Maybe Gerry Byrne was right as money used for major provincial government projects like the new hospital in Corner Brook are being diverted to Muskrat Falls, but Tom Marshall and Kathy Dunderdale continue to deny it.

From today's Globe and Mail : "According to the U.S. Government Accountability Office, the Green River Formation alone in Colorado and Utah contains more than a trillion barrels of recoverable oil. That amount is about equal to the entire world’s proven oil reserves. Everything you’ve ever heard about peak oil is obsolete.
This development is transformational. It will change the face of geopolitics. Abundant energy will also refuel economic growth."

So the premier believes that island ratepayers should develop Labrador power that will cost them between 20 and 40 cents per kilowatt hour to produce/ship, so that they can sell it outside the province for 2 to 5 cents per kilowatt hour? There are better ways to use and invest the 2 billion dollars that government has in reserve. Time (and the shale oil/gas revolution) has passed us by. Wishing for something, doesn't make it so. Muskrat Falls is ONLY in the "best interest" of NALCOR --- NOT THE PROVINCE, NOT THE PEOPLE. see www.vision2041com

it would be irresponsible and short sighted of government not to plan ahead assuming that oil prices can drop significantly...they should, if they don't already, low ball oil revenues when planning future spending...
I think we are being set up...that this is just an excuse to cut spending.